Recommended Games

CPKF: Third Quarter EPS Declines from Record EPS a Year Ago

Chesapeake Financial Shares, Inc.’s (CPKF) third quarter net earnings fell 38% to $1.5 million, while 2013’s third quarter diluted EPS slumped 39% to $0.45 from the record $0.74 posted in 2012’s third quarter. Admittedly, this was a bit disappointing to us, though we had never expected this year’s third quarter to top last year’s when CPKF achieved record earnings.

Click here to download a free copy of the CPKF research report: CPKF 11-7-13

In fact, CPKF’s third quarter diluted EPS of $0.45 was $0.20, or 31%, below our $0.65 estimate, largely due to higher-than-expected expenses.

There were some positives in the quarter. The Company reported $2 million of sequential loan growth, a provision for credit losses that was $50,000 below our $150,000 estimate, net interest income that was $0.1 million better than the $5.7 million we had projected, and growth in merchant card and cash flow income that each came in $0.1 million-plus higher than we had expected.

Still, this was more than offset by noninterest expense that was $0.7 million higher than we had anticipated. Furthermore, combined losses from the sales of securities and OREO were $0.4 million worse than our estimate.

On the positive side, CPKF recently hiked its quarterly dividend by 13% to $0.135 per share from $0.12 per share, which follows two dividend increases totalling 20% in 2012. Notably, CPKF has increased the annual dividend payment every year for the past twenty-two years since 1991.

On October 29, 2012, CPKF announced a tender offer to repurchase up to $1.5 million of company stock at a price of $18.50 per share for shareholders of record (a 12% premium to the $16.50 share price at that time) as of October 25, 2012, with shares tendered by the close of business on December 10, 2012. As the entire $1.5 million was repurchased, this reduced shares outstanding by 2% and increased annual diluted EPS by a penny.

We note that American Banker recently ranked CPKF 17th (down one notch from 16th a year ago) out of all banks nationally with less than $2 billion in total assets, which includes approximately 6,000 banks, and #2 of all banks in Virginia. This ranking was based upon three-year average returns on equity, which for Chesapeake Financial was 14.10%. The Company has steadily risen through the rankings in the past five years, reflecting its solid financial performance during this difficult banking environment.

Chesapeake Financial Shares, Inc. is a financial holding company headquartered in Kilmarnock, Virginia, with $659 million in total assets at September 30, 2013. CPKF is predominantly a small business lender with 12 branch offices that serve customers in the eastern region of Virginia between the Potomac and James Rivers. These offices are located in Kilmarnock, Lively, Irvington, Mathews, Hayes, and Gloucester, with five branches in Williamsburg. CPKF, which began as Lancaster National Bank on April 13, 1900, has a long history and strong ties with the communities it serves. In addition, CPKF opened a commercial loan production office in Richmond, Virginia in mid-August 2011.Please visit SCR.Zacks.com for additional information on our research and coverage universe, and Subscribe to receive our articles and reports emailed directly to you each morning.